The tasks ahead for America

David Goldman writes a fabulous article at American Affairs Journal. Some excerpts:

High-tech industrial production has been shifting away from the United States since the late 1990s. Until then, America ran a substantial surplus in high-tech goods. In the early 2000s, however, that surplus turned into a deficit, which is likely to exceed $100 billion this year.

Most of America’s trade deficit in high-tech goods consists of
technologies invented in the United States, often supported by federally funded research sponsored by the Department of Defense and NASA. The seven technologies listed below constitute the basic elements of all modern electronics from computers to smart phones; in each case, their manufacture has migrated to Asia because Asian governments adopted the formerly American practice of supporting basic R&D. The economic benefits of the digital revolution that originated in the United States have shifted to Asia. America’s share in the manufacture and distribution of its own inventions is relatively small.

The core digital technologies include the following:

Liquid crystal displays, which are employed in a wide variety of products, with $100 billion in annual sales. South Korea controls 35% of the market, Taiwan 25%, and China 20%.
Light-emitting diodes (LEDs) are produced mainly in China and Taiwan.
China and Taiwan dominate the production of semiconductor lasers, the energy source for fiber optic communications.
Solid state sensors, which generate images in digital cameras and related devices, are produced mainly in Taiwan and Japan.
Flash memory is produced mainly in South Korea, Japan and China, with only 10% of world output coming from the United States.
Integrated circuits are a $270 billion global industry. Most are produced in Taiwan and South Korea, and China has undertaken an aggressive investment program in the industry. Less than a quarter of world output is produced in the United States.
Solar energy panels, a $30 billion industry, are dominated by China.

Venture capital commitments to the manufacturing industry have collapsed because American investors do not believe that American industry can stand up to Asian competition. Some of the Asian advantage is the result of the theft of intellectual property, but most of it stems from above-board collaboration of government and industry. Asian countries have licensed U.S. technologies and supported joint ventures with American companies in order to foster technology transfer, and they have made cheap capital available to their high-tech industry. Asian governments also have supported technical education. China now graduates twice as many STEM Ph.D. candidates as the United States does each year.

Is it too late for American high-tech manufacturing? No, but drastic policy changes are required. Tax incentives for exports and tax disincentives for imports may not be sufficient to turn the tide of Asian dominance. In many instances, the entire supply chain for tech projects has relocated to Asia, which leaves American manufacturers overwhelmingly dependent on Asian production for imports. The simplest and most direct response would be to require domestic production for all sensitive defense-related goods, including all computers, displays, integrated circuits, sensors, and other high-technology equipment used in defense applications. In other words, for certain important categories of security-related manufactures, the tariff should be infinite. This is the only reliable way to ensure that American manufacturers will bring production, including critical parts of the supply chain, back to the United States.

Targets for future scientific research should include (but of course are not limited to):

Defeating the current generation of Russian air defense systems
Enhanced use of drones in place of manned aircraft
Hardening of satellites against prospective enemy attack
Cyber warfare
New physical principles in computing (e.g., quantum computing)
Quantum communications and encryption
Detection of ultra-quiet submarines (the present generation of Chinese diesel-electric boats are practically undetectable, and submarine drones could be used to deliver nuclear weapons to coastal cities)
Detection and defeat of the next generation of hypersonic missiles
Countermeasures against anti-ship missiles (rail guns, laser cannon)